Series: NOV 2012

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  • 1 Marks

AAA – Nov 2013 – L3 – A – Q20 – Audit of Specialized Industries

This question tests knowledge of reserves that may or may not be reviewed during the audit of a non-life insurance company.

Regarding the audit of a non-life insurance company, which of the following reserves may NOT be reviewed?
A. Reserve for unexpired risks
B. Reserve for outstanding claims
C. Contingent reserve
D. External reserve
E. Statutory reserve

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  • 1 Marks

AAA – Nov 2013 – L3 – A – Q19 – Internal Audit and Corporate Governance

This question identifies assignments that qualify as continuous audit functions.

Which of the following assignments can be regarded as a continuous audit function?
A. Examining the effectiveness, efficiency, and economy of a cement project
B. Evaluating the adequacy of the security and control measures of the information technology
C. Ascertaining the fairness of the annual financial statements and notes to the accounts
D. Reviewing the internal control procedures before commencing the audit
E. Reviewing the company’s compliance with relevant guidance and release of financial information periodically

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  • 1 Marks

AAA – Nov 2013 – L3 – A – Q18 – Audit Reporting

This question assesses knowledge of the main users of financial reports that auditors focus on.

The main users of financial reports that auditors need to be primarily concerned about are:
A. Management and directors of the company
B. The general public
C. Banks and other financial institutions that provide working capital
D. Suppliers
E. Shareholders of the company

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  • 1 Marks

AAA – Nov 2013 – L3 – A – Q17 – Auditor’s Legal Liability

This question examines the best defence an audit firm can present when accused of failing to identify substandard and obsolete inventory.

Yakubu Chukwu & Co was sued by one of its clients who alleged that the firm failed to satisfy the auditing standards in identifying substandard and obsolete inventory while attending end-of-year stock take. Which of the following is the firm’s best defence?
A. It is quite impossible to expect the firm to identify substandard and obsolete inventory due to the special nature of the inventory
B. Yakubu Chukwu & Co has to prove that its audit has been carried out with reasonable skill, care, and diligence
C. Auditing standards are not legislated, therefore, the client has no right to sue the firm
D. The contributory negligence of the client
E. Identification of substandard and obsolete stock requires an expert opinion

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  • 1 Marks

AAA – Nov 2013 – L3 – A – Q16 – Group Audits

This question assesses the appropriate audit procedure for verifying a subsidiary’s accounts before consolidation.

When a client has control over a subsidiary, what is the most appropriate audit procedure to obtain evidence to verify subsidiary accounts before consolidation?
A. Arrange for independent valuation of the assets and liabilities of the subsidiary
B. Be involved in the appointment of the subsidiary auditors
C. Rely on additional work carried out by the internal auditors
D. Send a template of your expectation to subsidiary auditors
E. Provide audit program for the subsidiary auditors

 

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  • 1 Marks

AAA – Nov 2013 – L3 – A – Q15 – Audit Reporting

This question assesses the primary purpose of sending a letter of enquiry to a legal firm regarding client litigation.

The main reasons why auditors send a letter of enquiry to the legal firm handling litigation or claims on behalf of their client is to provide:
A. Auditors with weak position in client litigation and claims
B. Auditors with written submission and statement of claims to the court
C. Information concerning the progress of outstanding cases to date
D. Auditors with corroborative audit evidence
E. Auditors with impact of legal opinion on financial statements

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  • 1 Marks

AAA – Nov 2013 – L3 – A – Q14 – Regulatory Framework and Professional Standards

This question assesses knowledge of factors that weaken local auditing standards and identifies an unrelated factor.

Factors that contribute to the weaknesses of local auditing standards include the following EXCEPT:
A. Standard setters being subject to political pressures
B. Having inadequate resources
C. Being insufficiently timed in response to market needs
D. Loss of investment by stakeholders
E. Having sources of fund which raise questions about their independence

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  • 1 Marks

AAA – Nov 2013 – L3 – A – Q13 – Environmental and Sustainability Audits

This question assesses the scope of social audit and identifies an area it does not cover.

Social audit has to do with the extent to which a company gets involved and interacts with the society in which it operates. This means that social audit does not extend to ONE of the following:
A. Corporate code of conduct and business ethics
B. Pricing policy, product safety, and quality control
C. Transaction audit
D. Employee health and safety
E. Environmental pollution

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  • 1 Marks

AAA – Nov 2013 – L3 – A – Q12 – Advanced Audit Planning and Strategy

This question assesses the primary purpose of understanding a client’s internal control system.

Which of the following is the primary purpose for obtaining an understanding of client’s internal control?
A. Provide a basis for making constructive suggestions in a management letter
B. Determine the nature, timing and extent of tests to be performed in the audit
C. Obtain sufficient and competent evidential matter to afford a reasonable basis for an opinion on the financial statements under examination
D. Provide information for communication of internal control related matters to management
E. Obtain sufficient evidence to afford a basis for an opinion on the financial statements

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  • 1 Marks

AAA – Nov 2013 – L3 – A – Q11 – Advanced Audit Planning and Strategy

This question tests knowledge of analytical procedures used to produce audit evidence.

Which of the following is an analytical procedure generally used to produce audit evidence?
A. Confirmations mailed directly to the auditor by the client’s customers
B. Physical observation of inventories
C. Relationship among current financial balances and prior balances, forecasts, and non-financial data
D. Detailed examination of external and internal documents
E. Circularisation letters to debtors and creditors of the company

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  • 1 Marks

BL – Nov 2012 – L1 – SA – Q3 – Sale of Goods

Identify which condition is NOT part of the 'fitness for purpose' in the Sale of Goods Act.

Which of the following is NOT a condition for “fitness for purpose” required by the Sale of Goods Act?
A. The buyer must have made known to the seller the particular purpose for which the goods are required.
B. The buyer must have bought the same type of goods from the seller before.
C. The buyer must have relied on the skill and judgement of the seller.
D. The goods must be the type which is ordinarily sold by the seller.
E. The goods must not have been sold under a patent or other trade name.

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  • 1 Marks

BL – Nov 2012 – L1 – SA – Q2 – Sources of Nigerian Law

Identify the major aim of civil law.

The major aim of civil law is to:
A. Punish the wrongdoer
B. Compensate the victim
C. Put both parties on record
D. Comply with the provisions of appropriate legislation
E. Ensure amicable settlement of disputes

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  • 1 Marks

BL – Nov 2012 – L1 – SA – Q1 – Sources of Nigerian Law

Identify which of the options is not a Nigerian statute.

Which of the following is NOT a Nigerian statute?

A. Equity
B. Decree
C. Act of Parliament
D. Edict
E. Bye-law

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  • 15 Marks

FA – Nov 2012 – L1 – SB – Q6 – Correction of errors

Prepare the Royalty Account, Donald’s Account, and the Short Working Recoverable Account.

Maxwell acquired the rights to run a quarry from a parcel of land owned by Donald. The agreement provided for:
i. Payment of royalty of N40 per tonne of granite quarried;
ii. A minimum payment of N2,000,000 per annum; and
iii. The right to recoup (for short workings) is to be extinguished at the end of the third year.

During the first four years of the contract, the following quantities of granite were produced:

Year Tonnes Produced
2008 40,000
2009 48,000
2010 54,000
2011 56,000

Maxwell’s accounting year ends on 31 December, and payment to Donald is made on 1 January following the year-end.

Required:
a. Prepare the Royalty Account (3 Marks)
b. Prepare Donald’s Account (7 Marks)
c. Prepare the Short Working Recoverable Account (5 Marks)

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  • 15 Marks

FA – Nov 2012 – L1 – SB – Q5 – Accounting Concepts

Prepare joint venture accounts between Taiwo and Kehinde and the memorandum joint venture account.

Taiwo and Kehinde entered into a joint venture to acquire packaging materials for table water production and to sell them to table water producers. They agreed to share joint venture profits or losses in the ratio 3:2, respectively.

At the outset, Taiwo sent Kehinde a cheque of N200,000 for his participation in the venture. They sold all the goods and recorded the following cash transactions:

Taiwo (N) Kehinde (N)
Revenue 320,000 210,000
Traveling expenses 32,700 46,300
Advertising 10,300 9,100
Stall rent 8,500 7,000
Wages of casual helper 4,800 –
Sundry expenses 5,900 2,900
Purchases 160,000 110,000

Settlement between the co-venturers took place by cheque.

Required:

a. Prepare the Joint Venture with Kehinde Account in the ledger of Taiwo. (5 Marks)
b. Prepare the Joint Venture with Taiwo Account in the ledger of Kehinde. (5 Marks)
c. Prepare the Memorandum Joint Venture Accounts. (5 Marks)

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  • 15 Marks

FA – Nov 2012 – L1 – SB – Q4 – Financial Statements Preparation

Prepare a bank cash book, retained earnings, and statement of financial position for Fehintola Enterprises.

On 1 January 2011, Mrs. Fehintola decided to invest her retirement benefit of N1,000,000 in the wholesale business of Fehintola Enterprises. She lodged the amount into the business bank account and paid for the following by cheque:

  • Motor Van: N600,000
  • Warehouse fittings: N340,000
  • Rent: N12,500

Proper accounting records were not kept, but the financial position as at 31 December 2011 revealed the following:

  • Inventories of goods in the warehouse: N150,000
  • Trade receivables: N125,000
  • Cash at Bank: N751,750
  • Trade payables for supplies: N100,000
  • Accrued rent: N15,000

The following were paid for by cheque:

  • Electricity bill at N2,500 per quarter up to 31 March 2012
  • Suppliers: N1,500,000
  • Personal expenses: N150,000

On 31 December 2011, it was agreed that the Motor Van and Warehouse fittings should be valued at N560,000 and N320,000, respectively.

Required:

a. Prepare the Bank Cash Book (5 Marks)
b. Prepare a statement showing the retained earnings for the year ended 31 December 2011 (5 Marks)
c. Prepare the Statement of Financial Position as at 31 December 2011 (5 Marks)

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  • 15 Marks

FA – Nov 2012 – L1 – SB – Q3 – Accounting Concepts

Prepare journal entries, ledger accounts, and a revised statement of financial position after the redemption of preference shares.

Josephine Limited has an Authorized share capital of 15,000,000 Ordinary Shares of N1 each and 2,000,000 5% Redeemable Preference Shares of N1 each. The Statement of Financial Position of the company as at 31 December 2010 is as follows:

The preference shares are redeemable at N1.10 per share, and it was decided that they should be redeemed on 2 January 2011. In order to provide the necessary funds for the redemption, the short-term investments were sold for N1,600,000.

Required:
Prepare journal entries, necessary ledger accounts, and the Statement of Financial Position after the transaction has been completed.

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  • 15 Marks

FA – Nov 2012 – L1 – SB – Q2 – Regulatory Environment of Accounting

Explain the conceptual framework under IFRS and discuss accounting concepts and definitions of assets and liabilities.

a. Explain the term “Conceptual Framework” in relation to International Financial Reporting Standards (IFRS). (4 Marks)

b. Define Assets and Liabilities. (2 Marks)

c. The International Accounting Standards Board’s framework for the preparation of financial statements requires that entities should comply with certain accounting concepts and underlying assumptions which include:

i. Substance over form;
ii. Materiality;
iii. Comparability; and
iv. Going concern.

Explain briefly the meaning of these concepts. (4 Marks)

d. Discuss the information needs of the following users of a company’s financial statements:
i. Lenders;
ii. Suppliers;
iii. Customers;
iv. Employees;
v. Government and its agencies. (5 Marks)

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  • 15 Marks

FA – Nov 2012 – L1 – SB – Q1 – Financial Statements Preparation

Explain the principles and prepare financial statements based on a construction contract.

Real Construction Company Plc. is a major construction company in Nigeria. It recognizes revenue on construction contracts by reference to the stage of completion of the contract. However, in certain circumstances, revenue is only recognized to the extent that it does not exceed recoverable contract costs.

The company is halfway through a contract to build a new overhead bridge at a contract price of N300 million.

Progress report on this contract as at 1 April 2011 is as follows:

  • Cumulative sales revenue recognized: N150 million
  • Cumulative cost of sales to date: N112 million
  • Profit to date: N38 million

The following information has been extracted from the accounting records as at 31 March 2012:

  • Total progress payment received for work certified as at 29 February 2012: N180 million
  • Total costs incurred to date (excluding rectification costs below): N195 million
  • Rectification costs: N17 million

Real Construction Company Plc. had received progress payments of 90% of the work certified as at 29 February 2012. The company surveyor estimated that the value of the further work to be completed during March 2012 would be N20 million.

At 31 March 2012, the estimated costs of uncompleted contract were put at N45 million.

The rectification costs were the costs incurred in widening the pedestrian access roads to the bridge, due to an error by the company’s architect when making the initial drawings.

The company calculates the percentage of completion of its contracts as the proportion of value earned to date compared to the contract price.

All estimates can be taken as reliable.

Required:

a. Briefly explain the principles underlying each of the two methods of recognizing revenue and describe the circumstances in which their uses are appropriate. (5 Marks)

b. Prepare extracts of the financial statements for the contract for the year ended 31 March 2012. (10 Marks)

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  • 1 Marks

FA – Nov 2012 – L1 – SB – Q40 – Elements of Financial Statements

Calculate the dividend payable to ordinary shareholders.

If a 10% dividend is approved, what is the dividend payable to ordinary shareholders?

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